1. www.gsel.it ENERGY SECURITY OR ENERGY INDEPENDENCE? RENEWABLE ENERGY SOURCES IN ITALY 1° Encontro Latino-Americano de Economia de Energia Salvador Bahia - 27 de maio de 2008 Prof. Carlo Andrea Bollino

2. 2CONTENTS From the: Energy Independence and Security Act of 2007 …..Incentive Program with the following features: …..Incentive Program with the following features: 1. The incentive should be carbon-weighted to make lower emission power sources less expensive relative to higher emissions sources, and it should take into account our Nation's energy security needs. 1. The incentive should be carbon-weighted to make lower emission power sources less expensive relative to higher emissions sources, and it should take into account our Nation's energy security needs. 2. The incentive should be technology-neutral because the government should not be picking winners and losers in this emerging market. 2. The incentive should be technology-neutral because the government should not be picking winners and losers in this emerging market. 3. The incentive should be long-lasting – it should provide a positive and reliable market signal not only for the investment in a technology, but also for the investments in domestic manufacturing capacity and infrastructure that will help lower costs and increase availability. 3. The incentive should be long-lasting – it should provide a positive and reliable market signal not only for the investment in a technology, but also for the investments in domestic manufacturing capacity and infrastructure that will help lower costs and increase availability.

3. 3CONTENTS GSE – Gestore dei Servizi Elettrici  Renewables targets UE and Italy  Certification for issuing Green Certificates  Situation of Green Certificates  Release of Guarantee of Origin  PV incentive scheme  Co-generation  CIP-6 electricity

4. 4 GESTORE MERCATO ELETTRICO (GME) Ownership 100% Ministry of Economic Development, also in consultation with Ministry of Environment and Land Protection ACQUIRENTE UNICO (AU) MINISTRY OF ECONOMY AEEG (Electricity & Gas Regulator) Electricity Market Environmental Markets ( Green Certificates - White Certificates - CO2 Allowances) Purchase electricity for captive customers Incentives to Renewables Management of incentives to CIP-6/92 plants Certification of co-generation for energy savings Gestore dei Servizi Elettrici (GSE) Decisions Guidelines 100% GSE – Gestore dei Servizi Elettrici

5. 5 GSE’s responsibilities  Certifies and issues Green Certificates to power plants fed by renewables (IAFR-certified plants) and by other eligible sources  Releases Guarantee of Origin (GO) and RECS (Renewable Energy Certificate System) certificates to plants fed by Renewables  Incentives photovoltaic (PV) solar plants through the “conto energia” (feed-in tariff)  Incentives plants fed by Renewables and so-called “assimilated” sources as per Decree no. 6/92 of Interministerial Committee on Prices (CIP 6/92)  Certifies co-generation plants Managing the support scheme provided to electricity production from Renewables and other eligible energy sources GSE – Gestore dei Servizi Elettrici

6. 6 Tools actually used Feed-in tariff Quota System - Green Certificates Others System based on a transfer of a guaranteed price to the electricity fed into the grid Responsible body: GSE that has the duty to buy the electricity from the supported power plants and to pay it to a predefined price for a defined period Producer and importer obligation to feed into the grid a % of RES electricity Green certificates are the compliance tool In case of not compliance, a penalty is applied Investment support (at regional level) Fiscal exemption (ex.: VAT reduction) Access to financing at sensible rate (managed locally) Italian RES Support Schemes

7. 7CONTENTS  GSE – Gestore dei Servizi Elettrici Renewables targets UE and Italy Renewables targets UE and Italy  Certification for issuing Green Certificates  Situation of Green Certificates  Release of Guarantee of Origin  PV incentive scheme  Co-generation  CIP-6 electricity  Dedicated withdrawal of the electric power

8. 8 Renewables in Italy Electricity generation in Italy from 1900 to 2006 After 47 years Year 1960 Hydro= 46,1 TWh Renewables Hydro= 45,8 TWh Total= 56,2 TWh Hydro/total= 82% Year 2006 Hydro= 39,0 TWh Renewables Hydro= 33,4 TWh Total= 339,8 TWh Renewables Hydro/total= 9,8%

9. 9 Renewables in Italy Gross generation from renewables in Italy from 1997 to 2007 (GWh) * preliminary data (Terna, GSE) HydroGeothermalWind Biomass and waste Solar

10. 10 Renewables in Italy gross electricity consumption vs. generation from renewables from 1994 to 2007 (GWh) Generation from renewables Gross Electricity Consumption Generation from Renewables Gross Electricity Consumption YearsREN / G.E.C. 199418,0 199514,9 199616,5 199716,0 199815,6 199916,9 200016,0 200116,8 200214,6 200313,9 200415,8 200514,1 200614,6 200714,0

11. 11 EU Targets: more an more ambitious RES Energy Total Consumption 12 % E-RES Electricity Tot. Consumption 22 % EU Directive 2001/77/EC concerning the promotion of RES: target up to 2010 not binding New energy package approved by the Spring 2007 Council: binding target up to 2020 20 % 30-35% * * First assessment for Italy Renewables in Italy

12. 12 Assessment of the italian potential in the production from RES to cope with the new EU RES target (Sept. 2007) Renewables in Italy

13. 13 Confermed the 2020 target Use of bio-fuels for transport = 10% (per each member state) Use of RES out of primary energy = 20% (to be shared at national level) Main parameters for the Nationatarget Main parameters for the National target: Gross Internal Production (penalty for countries with GIP > European average) RES Deployment over the past few years (penalty for countries less actives) Italy total target = For Italy total target = 17% (2005 national figure = 5,2%) Global target and energy review (new EU framework) EU Targets: Commission new RES directive proposal (23.01.2008)

14. 14 National Binding Target not already foreseen administrative penalties needed compliance with ad interim targets Final Consumption Calculation RES final consumption = e.e. consumption + RES heat and cooling consumption + RES consumption in transport RES e.e. consumption = RES national production +/- GO imported/exported Guarantee of Origin (GO) for Electricity and heat and cooling Electronic format, to be redeemed after the use Mutual recognition of GO Possible trading of GO between EU countries but, limitation to the use of imported GO Global target and energy review (new EU framework) EU Targets: Commission new RES directive proposal (23.01.2008)

15. 15 Authorization regimes Better and simplified procedures Role of the mediator to solve disputes between authorisation authorities and producers Grid Connection Necessary infrastructure improvement RES priority dispatching Connection costs sharing between producer and grid operator Support schemes EU Commission assessment of national mechanisms to propose an harmonised system Sustainable criteria Foreseen sustainability assessment for bio- fuels Global target and energy review (new EU framework) EU Targets: Commission new RES directive proposal (23.01.2008)

16. 16CONTENTS  GSE – Gestore dei Servizi Elettrici  Renewables in Italy Certification for issuing Green Certificates  Situation of Green Certificates  Release of Guarantee of Origin  PV incentive scheme  Co-generation  CIP-6 electricity  Dedicated withdrawal of the electric power

17. 17 Producers and importers must feed in the electric grid an amount of renewable source energy equal to the x% of not renewable energy produced or imported the year before (only for the amount exceeding 100 GWh) In 2007 the x% was equal to 3,05 % of the electricity from conventional sources generated and/or imported in 2006 Producers and importers can fulfil the obligation by means of green certificates issued in favour of their own renewable energy production or of other productions RES power plant, only after technical qualification by GSE, can receive green certificates Every green certificate has a size of 1 MWh and is valid for the relevant reference year and the following two Certification for issuing Green Certificates Green Certificate scheme:

18. 18 1 MW BIG POWER PLANTS SMALL POWER PLANTS New Green Certificates System Feed-in tariff mechansim Differentiation by source Special provisions for “local” biomass Duration 15 years GC value (€/MWh) = 180 – average market price (defined by the Energy Regulator) GC size = 1 MWh Increase of the obligation = 0,75% on yearly basis (2007-2012) All comprehensive tariff From 2009 uniqueness of support scheme Financial Law 2008 and Law n. 222/2007 Certification for issuing Green Certificates

19. 19 All comprehensive tariff Size </= 1 MW (200 kW for wind generation)  The electricity – fed into the grid - is supported for 15 years  The tariffs are differentiated by source, according to the following table: Table 3 - Law 24/12/2007 n.244 (as modified by Law 29/11/2007 n.222) Certification for issuing Green Certificates

20. 20 art. 2, para. 1, Legislative Decree no. 387 of 29 Dec. 2003 Hydro Geothermal Solar Biomass Biogas and gas from purification The biodegradable fraction of products, waste and residues from agriculture (including vegetal and animal substances), forestry and related industries, as well as the biodegradable fraction of industrial and municipal waste. Wind RENEWABLES Non-Fossil Energy Sources Certification for issuing Green Certificates Waves and tides

21. 21 Certification for issuing Green Certificates Date No. of certified plants 1.320 980 2.300 Plants certified from 2001 to 2007

22. 22CONTENTS  GSE – Gestore dei Servizi Elettrici  Renewables in Italy  Certification for issuing Green Certificates Situation of Green Certificates  Release of Guarantee of Origin  PV incentive scheme  Co-generation  CIP-6 electricity  Dedicated withdrawal of the electric power

23. 23 Situation of Green Certificates Green Certificates issued in 2006 by energy source 6 TWh = 6 thousand million of kWh FonteNumero CV HYDRO45.639 WIND 42.484 GEOTHERMAL16.340 BIOGAS8.699 BIOMASS6.154 WASTE2.399 SOLAR31 TOTAL121.746 38% 35% 13% 7% 5% 2% 0% HYDRO WIND GEOTHERMAL BIOGAS BIOMASS WASTE SOLAR

24. 24CONTENTS  GSE – Gestore dei Servizi Elettrici  Renewables in Italy  Certification for issuing Green Certificates  Situation of Green Certificates Release of Guarantee of Origin  PV incentive scheme  Co-generation  CIP-6 electricity

25. 25  Certification introduced by EU directive 2001/77  GO Certifies that the electricity produced has been actually generated from renewable sources  GO is a tool that facilitate cross border trade of electricity from renewable within UE  GO is used to inform customers about the source of generation jointly to the energy supplied Guarantee of Origin (GO) to RES Electricity Results of 2006  22 domestic operators  identified plants: 68 hydro, 2 biogas, 3 biomass and 2 wind, with a total capacity of 1,389 MW  GOs are being issued (for an estimated capacity of 5 TWh) * The GO is issued, upon request, to RES electricity generation by old and new plants Release of Guarantee of Origin

26. 26CONTENTS  GSE – Gestore dei Servizi Elettrici  Renewables in Italy  Certification for issuing Green Certificates  Situation of Green Certificates  Release of Guarantee of Origin PV incentive scheme  Co-generation  CIP-6 electricity  Dedicated withdrawal of the electric power

27. 27 The feed in tariff system  The mechanism is based on an incentive proportional to the electricity produced by the PV plant.  The capacity cap is 1200 MW  The tariffs, fixed for 20 years, are added to -revenues of energy fed into the grid if the system operator chooses the sale. - saving on bill in case of net-metering system (for the plants up to 20 kW)  Tariffs promote architectural integration and building energy efficiency. The key elements of mechanism

28. 28 PV feed in tariffs in Euro cents per kWh for plants commissioned before 31th December 2008 The tariffs do not change during the period. In addition, a further increase is granted for specific kind of plants (5%) and for plants with a capacity up to 20 kW, operating in net-metering system, for improving the energy efficiency of the annexed building (with a limit of 30%). The feed in tariff system

29. 29 Additional changes for electricity sale to the grid Decree n° 280/07 of AEEG  From 1st of January 2008 GSE purchases the electricity produced by PV plants (paying the zonal hourly price) if the system operator doesn’t operate through IPEX.  For the first 2 million kWh there is a minimum guaranteed price for plants up to 1 MW. The feed in tariff system

30. 30 Conclusions General observations  Italian incentives are among the highest in the world. Thanks to good geographical position, expecially in the south of Italy, plants achieve a high level of utilization (over 1500 hours/year).  The authorization process is very long, with huge differences among regions.  The private investors complain about long lag time for the connection to the grid and about difficulties for financing (collateral guarantee).

31. 31 Total results by 1st of March 2008 8.027 commissioned plants N° 000 8 40 104 174 278 442 681 935 1.218 1.524 1.815 2.159 8.027 000 8 40 104 174 278 442 681 935 1.218 1.524 1.815 2.159 3.772 7.032 6.057 5.671 2.533 4.973 4.380 4.228 3.736 3.381 2.873 4.255 4.150 4.003 3.762 3.908 3.590 3.363 3.191 2.806 2.517 3.548 2.882 2.054 1.763 1.211 790 680 373 190 67 16 0 500 1.000 1.500 2.000 2.500 3.000 3.500 4.000 4.500 5.000 5.500 6.000 6.500 7.000 7.500 8.000 8.500 feb-06 mar-06 apr-06 may-06 jun-06 jul-06 aug-06 sep-06 oct-06 nov-06 dec-06 jan-07 feb-07 mar-07 apr-07 may-07 jiu-07jul-07 aug-07 sep-07 oct-07 nov-07 dec-07 jan-08 feb-08 mar-08 Total First Decree New Decree Conclusions

32. 32 Total results by 1st of March 2008 82,4 MW capacity of commissioned plants MW 0,0 0,1 0,5 1,0 1,9 3,1 4,5 6,5 8,2 11,7 13,8 17,7 82,4 0,0 0,1 0,5 1,0 1,9 3,1 4,5 6,5 8,2 11,7 13,8 17,7 37,5 45,7 49,0 62,1 20,3 70,0 59,8 55,1 24,8 21,6 30,2 34,5 40,5 41,3 47,6 55,0 24,4 21,5 37,2 32,7 29,2 41,8 15,0 10,8 9,4 0,1 0,4 1,0 1,8 3,3 3,8 5,8 0,0 5,0 10,0 15,0 20,0 25,0 30,0 35,0 40,0 45,0 50,0 55,0 60,0 65,0 70,0 75,0 80,0 85,0 feb-06 mar-06 apr-06 may-06 jun-06 jul-06 aug-06 sep-06 oct-06 nov-06 dec-06 jan-07 feb-07 mar-07 apr-07 may-07 jun-07 jul-07 aug-07 sep-07 oct-07 nov-07 dec-07 jan-08 feb-08 mar-08 Total First Decree New Decree Conclusions

33. 33 Total incentives distributed by 1st of March 2008 TYPE OF CONTRACT Plants under contract Capacity kW Energy kWh Incentives distributed € NET-METERING4.35821.12517.116.1027.788.074 SALE TO THE GRID49222.98718.848.6109.012.799 TOTAL4.85044.11235.964.71216.800.873 Conclusions

34. 34CONTENTS  GSE – Gestore dei Servizi Elettrici  Renewables in Italy  Certification for issuing Green Certificates  Situation of Green Certificates  Release of Gurantee of Origin  PV incentive scheme Co-generation  CIP-6 electricity

35. 35 Quality indexes according to Act n. 42-02  Energy saving index (I.R.E.) Fuel saving (per cent) achieved in a plant by producing electricity and heat in cogeneration (as compared to separate productions).  Thermal limit (L.T.) Ratio of heat produced to total (heat+electricity) production. Co-generation

36. 36 Benefits for power cogeneration-produced power  No obligation to purchase green certificates.  Priority of dispatching, after power produced by RES (Renewable Energy Sources).  Issuing of green certificates (only for cogeneration applied to district heating and put in operation within a definite time period).  Issuing of certificates of energy efficiency, which can be sold.  Tax benefits. Co-generation

37. 37 Units with overall annual efficiency 75% and higher (80% and higher, according to type): All annual electricity production is assumed to be from cogeneration. Co-generation

38. 38 If this is not the case, electricity from cogeneration is calculated as follows: E CHP = H CHP *C  E CHP :electricity from cogeneration (MWh);  C : “power to heat ratio“: conventional ratio of annual electricity production and annual heat production of the unit.  C is listed as a function of technology (combined cycle, steam turbine, gas turbine, internal combustion engine etc.)  H CHP useful heat from cogeneration Co-generation

39. 39CONTENTS  GSE – Gestore dei Servizi Elettrici  Renewables in Italy  Certification for issuing Green Certificates  Situation of Green Certificates  Release of Guarantee of Origin  PV incentive scheme  Co-generation CIP-6 electricity

40. 40  Law no. 9 of 9 Sept. 1991 (Art. 22) – Liberalisation of electricity generation from renewable and so-called “assimilated” sources; new initiatives compatible with Enel’s programmes; purchase of electricity generated by new plants at incentivising prices  Decree of CIP (Interministerial Committee on Prices) no. 6 of 29 Apr. 1992 and Ministerial Decree of 4 Aug. 1994 – Definition of sources “assimilated” to renewable sources; prices equal to Enel’s avoided cost + 8-year incentives to new plants; procedure for yearly revision of prices  AEEG’s Decisions 108/97 and 81/99 – Reduction of prices for the sale of surplus electricity and injection of electricity into the grid by former producing-distributing companies  Legislative Decree 79/99 (art. 3) and Ministerial Decree of 21 Nov. 2000 – Transfer of rights and obligations to GRTN (now GSE) for the purchase of electricity from 1 January 2001  AEEG’s Decision 34/05 – Definition of prices for system operators’ purchase of electricity generated by plants of up to 10 MVA and from non-plannable renewable- energy plants (excluding CIP-6 plants) from 1 January 2005 CIP-6 electricity Reference legislation

41. 41 Evolution of CIP-6 electricity: 2008 - 2020 As per art. 3, para. 12, Legislative Decree 79/99, the volume of electricity purchased by GRTN (now GSE) shall vary depending on the number of plants having entered into a CIP-6 agreement, on the contractual capacity and on the duration of the agreements (notwithstanding the payment of an incentivised tariff for the first 8 years of operation of the plant, such duration may in some cases reach 15 or 20 years) (1) Values based on prices for payment on account in 2006, yearly increased by 2% (1) CIP-6 electricity Expected CIP-6 generation 2008-2020 – Years Projected CIP-6 electricity purchasing costs 2008-2020 - Years INC:incentive CEC: avoided fuel cost CEI: avoided plant/installation cost